–Cash on the Sidelines:James Bianco says the idea of corporate cash sitting on the sidelines is a myth. “Liquid assets held on companies’ balance sheets is a nominal number, much like the nominal level of GDP, that rarely decreases. This series must be compared to other balance sheet items for relevance. The chart below shows liquid assets as a percentage of total nonfarm nonfinancial corporate business assets since 1952. By this measure, the “cash on the sidelines” argument is far less compelling… We have argued in the past that the potential of excess cash on the sidelines to help buoy the markets once invested was minimal. After considering the latest revisions, this becomes even more true.”

–Federal Spending:Ed Yardeni looks at changes in federal spending. “The good news is that federal government spending has actually flattened out around $3.5 trillion at an annual rate since mid-2009. But that follows a big jump during the previous two years. Let’s have a closer look at the major spending categories: (1) Income security and Medicaid. Much of the jump and subsequent flattening of federal spending was attributable to spending on “income security” programs such as unemployment benefits and food stamps. On a 12-month basis, this outlay peaked at a record $626 billion during November 2010 and fell to $557 billion last month. While this category should be counter-cyclical because it is a so-called “automatic stabilizer,” it remains on a solid upward trend. Federal spending on health, i.e., mostly Medicaid, actually dipped late last year and early this year, but it too remains on an upward trend. It totaled $350 billion over the past 12 months.”

–Fed Policy:Greg Ip looks at whether the Fed has the tools to accomplish its goals. “In truth, though, I think those are pretty minor risks. A much bigger risk is that for all the theoretical appeal of the Evans rule, it is not at all clear the Fed’s tools can deliver the lower unemployment it wants. If the public shares that skepticism, the expectations effect won’t work. The Fed did say it would step up QE to $85 billion a month; Operation Twist, under which $45 billion of long-term Treasurys were bought in exchange for short-term paper each month, will be replaced by $45 billion of Treasury purchases, financed by printing money. But will those bond purchases do much good? The quick rally and reversal in equity markets is not encouraging. It may be, of course, that the new threshholds don’t change the path of tightening already discounted in the market.”

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